Clearwire has reaped the rewards of its intensive lobbying for AT&T-BellSouth to be forced to divest their 2.5GHz spectrum as a condition of their merger.
The company has spent about $300 million to acquire these licenses, adding to its own holdings in the south eastern states and consolidating its position as the second largest owner of broadband wireless spectrum in the US, after Sprint Nextel.
The purchase will be a welcome boost to Clearwire in the run-up to its planned IPO. Founder Craig McCaw understands better than most the value of spectrum, as the essential basis of broadband services and as a tradeable asset. Since much of the attraction of the IPO will be based on McCaw’s perceived personal strengths in telecoms, and in the confidence investors will place in his huge attachment to spectrum as the basis for a business, gaining new bandwidth at a reasonable price – compared to what might have been expected in an open auction – will be a good vote winner. It establishes Clearwire as the unchallenged second runner to Sprint Nextel in the 2.5GHz space, turning the company from an audacious start-up to a serious contender with impressive spectrum and funding.
What it really needs next is a strong partner with experience and customer reach in service delivery, preferably on the media side – as Sprint has with its four cablecos. The satellite TV giant DirecTV/Echostar would be the best – and often rumored – ally, but other candidates could include EarthLink, given its dependence on broadband wireless to fend off the telcos, its Helio MVNO property, and Clearwire’s new interest in metrozones; or even an internet pure play looking to control a network and wrongfoot the mobile carriers, such as Google or MSN.
Of course, all this may be geared to increasing the value of Clearwire ready for a future lucrative acquisition, following the pattern of McCaw’s greatest success to date when he sold McCaw Cellular to AT&T. AT&T could be in the running again, as could Verizon – although recent decisions show the FCC is currently keen to use the 2.5GHz bands to encourage alternatives to the major telcos – or, perhaps most likely, Sprint Nextel, seeking to strengthen the 2.5GHz quad play that will be its only hope of narrowing the gap with the big two. Meanwhile, AT&T finds itself in a dilemma in the broadband wireless space. Forced to sell off its valuable 2.5GHz assets as a condition of its merger with BellSouth, it is also mandated to build out its 2.3GHz spectrum, which though plentiful, is far less easy to turn to profitable services than 2.5GHz because it is split up by the satellite radio band, and is burdened with onerous regulations to avoid interference with those neighbors.
It will be hard for the company to compete like-for-like with Sprint and Clearwire without spending significantly more on infrastructure, although it is seeking to improve its chances by asking the WiMAX Forum for a ‘wave three’ specification more tuned to running 802.16e in difficult frequencies, with more complex use of smart antennas, for instance, to enhance spectral efficiency.
In the short term, AT&T and BellSouth are using their 2.3GHz properties mainly for wireless DSL, to fill gaps in rural coverage, but are likely to look to a more ambitious, Sprint-style mobile media plan in future in order to generate greater value from their enforced investment. To date, the merged company has deployed pre-WiMAX technology in 18 cities, including urban and suburban areas of Atlanta and New Orleans, and parts of Texas and Florida. BellSouth has used Navini equipment and has also been in trials with Alcatel, while AT&T has tried a variety of suppliers including Soma Networks.
Their combined 2.3GHz holdings have very broad coverage of the continental US, omitting only Michigan, Maine, north Texas and a few areas of the upper MidWest. AT&T has taken keen interest in WiMAX, initially as a way to bypass access fees to local line owners – a consideration that was diluted once it was acquired by SBC – and also for enterprise applications, and it has been one of the most active operators in the WiMAX Forum.
For its part, Clearwire offered pre-WiMAX services in 34 markets at the end of 2006, using the NextNet kit that it used to own and which is now part of Motorola. Its coverage is about 8.6 million people, with a customer base in the US of around 210,000. To fund further build-out and spectrum acquisition at home and abroad, the company hopes to raise $575m in its IPO and recently set its proposed IPO terms at 20 million shares at a price range of $23 to $25 per share, plus an additional 3 million if demand dictates. No date has yet been set. This is the second IPO attempt for Clearwire which cancelled an earlier plan last year after receiving a $900m investment from Intel and Motorola.